Lehman Brothers examiner releases report

March 11, 2010

The court-appointed examiner who investigated the collapse of U.S. investment bank Lehman Brothers Holding Co made his report public after a judge ruled he could do so on Thursday. Here are some highlights from the report, which is available here. A full story will follow shortly:

* Examiner says “business decisions that brought Lehman to its crisis… may have been in error but were largely within the business judgment rule”

* Examiner says a limited amount of assets of (Lehman affiliates) were “improperly transferred” to Barclays PLC

* Examiner says there may be “colorable claims” against senior officers ” who oversaw and certified misleading financial statements”, naming Fuld, O’Meara, Callan and Lowitt

* Examiner says there may be “colorable claims” against Ernst & Young and senior officers for failure to meet professional standards in connection with lack of disclosure

* Examiner says “Lehman’s valuation procedures may have been wanting and that certain valuations may have been unreasonable”

* Examiner says there is sufficient evidence to support that Lehman was insolvent on beginning on September 2, 2008

* Examiner says Lehman’s “small margin of equity relative to assets meant it did not need much loss of asset value to render it insolvent”

* Examiner says “a colorable claim is one for which there is sufficient credible evidence to support a finding by a trier of fact”

* Examiner says Lehman employed certain repo transactions for sole purpose of “balance sheet manipulation”

* Examiner says JPMorgan Chase & Co is still holding about $6.9 billion of Lehman collateral

* Examiner says Lehman may have a “colorable claim” that would let it recover some collateral transfers made to JPMorgan as part of a September guaranty

* Examiner says Lehman may have a “colorable claim” against one clearing bank – JPMorgan – arising from collateral demands in 2008

* Examiner says JPMorgan CEO Dimon told Fuld in every conversation “that he did not want to harm Lehman”

* Examiner says JPMorgan CEO Dimon said had Lehman CEO Fuld called him, JPM would likely not have insisted on collateral because it didn’t want to be blamed for Lehman’s demise

One comment so far | RSS Comments RSS

Somehow, I can’t get it out of my head that Paulson, then Geitner, enjoyed the opportunity to let Lehman go. Wasn’t lehman a competitor of both individuals progenitor companies?
Regardless of Lehman mistakes, errors of Commission and Omission, Lehman became the weak link, and either they all (the banks and financial institutions that created the risky products)should have been “bailed” through Nationalization and clean-up, or none. That is still true today, and even though Hundreds of Billiosn (Even over a Trillion) of additional losses might have to be taken, banks should be raising the capital required to cushion the losses, and get on with the business of building a new banking business model. The risk belonging to Investors, not taxpayers.
I certainly hope the “cure” includes stringent restrictions on the use of leverage, and equity capital reserves that make the risk of leverage expose the owner’s and manager’s wallets to the losses, when and if they occur, and prudent investing ratio formulas.
These should reflect a balance between allowing risk-taking and making sure that when losses occur through misguided strategies, “gambling” products, or otherwise, regulations insure that there is enough equity in each product, each deal , to make sure the equity holders, not the taxpayers, are the losers.
It certainlyu appears that the “big bet” financial products designed to play in the financial casinos of the world should properly place the risk of loss where it belongs, the equity owners and investors.

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